Capping Exorbitant Loan Interest Rates
Sacramento, CA — The California Assembly has voted to cap the interest lenders may charge on loans to halt soaring triple digits rates.
The proposed law, which is backed by civil rights groups, religious organizations and some trade associations, would cap annual rates at around 38% for loans between $2,500 and $10,000. The measure comes as legislators nationwide seek to reign in a storefront lending industry critics accuse of preying on low-income consumers in need of cash and trapping them under mounds of debt for years.
Even while the bill has advanced, some state lawmakers are voicing concerns that it will limit choices for those with bad credit or little access to banks and other financial services. Assembly Speaker Anthony Rendon dismissed that argument and courters, “Those are merely talking points of an industry that has repeatedly lied to members of this chamber.”
The lending industry, which wields significant influence in legislatures across the country, has launched an ad campaign in California attacking the bill as it heads to the state Senate, where its passage could face a tougher fight.
Pointing to an explosion in high-interest loans around the state over the last decade, those in favor of capping interest rates relay that in 2009, 8,468 loans for amounts between $2,500 and $10,000 saw interest rates over 100%. The state already caps interest rates on consumer loans under $2,500 but not for amounts over that threshold.
Lenders now issue more than 350,000 loans each year with interest rates in the triple digits. A legislative analysis reports that at least one out of three borrowers is unable to pay their loans.